Why Nevis Trusts Make Creditors Think Twice: Asset Protection Explained

The Nevis trust is often used as part of a global asset protection plan. Nevis’s unique laws offer significant protection for trust assets against creditors. In general, a creditor must file a new lawsuit in St. Kitts and Nevis and then prove his case in that foreign country. Even a valid foreign judgment may not be enforceable in Nevis, and special procedural requirements must be satisfied. While no asset protection is foolproof, the additional costs, complexity, and uncertainty these laws impose on a mere claimant may deter an unjustified attack on your assets. 

Key Takeaways

• Nevis has a specific statutory framework for international trusts. The Nevis International Exempt Trust Ordinance governs qualifying international trusts and provides specific asset protection and estate planning features.
• Foreign judgments are not directly enforceable against a Nevis international trust. According to the Nevis Financial Services Regulatory Commission (FSRC), a creditor seeking to recover trust assets must bring a new civil action in the courts of St. Kitts and Nevis.
• Creditors face significant challenges proving fraud in a claim against a Nevis trust. The FSRC sets out the circumstances under which a creditor who is seeking to attack a transfer of assets to a Nevis trust will have to prove the transfer was a fraud upon that creditor.
• Even when a creditor has a valid claim, time and cost constraints still apply. The FSRC will require the creditor to post a security bond of US$25,000.00 prior to commencing proceedings against a Nevis trust, and all claims are limited by a one (1) year statute of limitations.
• When a creditor has a valid claim, the additional time, expense, uncertainty, and other burdens of litigation over a Nevis trust can make the effort not worthwhile and result in a settlement.
• Importantly, however, the trust is to be used as an asset protection vehicle and for wealth planning purposes, not as a means to conceal assets or discourage pre-existing creditors. In other words, the trust should be established before any disputes arise, not after a claim has been raised and assets transferred to the trust. 

Why Is Nevis Considered a Strong Asset Protection Jurisdiction?

Ultimately, asset protection planning is much more than just moving your assets to some other country. What really matters is the law in the jurisdiction where you will set up the structure. This is what controls how far a creditor must go to enforce a court judgement and thus creates the obstacles they must get over before they can actually recover on their claim.

Nevis has a special body of laws designed to support international trusts. The trust laws are set out in the Nevis International Exempt Trust Ordinance (NIETO), which sets out the structure for a variety of international trusts, including spendthrift trusts or protective trusts, charitable trusts, and non-charitable trusts.

The Nevis Financial Services Regulatory Commission recognizes the importance of international trusts in estate planning and outlines the requirements for registration of trusts under the NEO.

For example, most international trusts must have a qualifying trustee or AMP, in addition to other requirements, but the settlor and beneficiaries can be outside Nevis. Also, the trust property cannot include any real property located in either St. Kitts or Nevis. Information on these laws and processes can be found on the Nevis Financial Services Regulatory Commission website and the official laws of St. Kitts and Nevis website.

Information on the established legal structure and registration procedures is available through the Nevis Financial Services Regulatory Commission and the St. Kitts and Nevis Law Commission.

In considering the use of an offshore asset protection trust, one should look beyond the hype and recognize the role that these regulations can play in the overall structure of the laws to be encountered by an aggressive creditor.

How Does a Nevis Trust Protect Assets?

A major function of trusts is to keep the trust’s assets separate from the benefits of those assets and from the individuals involved with the trust, including the settlor(s), beneficiaries, and others.

The individual who creates a trust is typically referred to as the trust’s settlor. A settlor can transfer assets to one or more trustees, and the trustees manage the property held in trust in accordance with the terms of the trust created by the settlor. The beneficiaries of a trust may receive distributions of capital and/or receive income generated by the trust assets.

Individuals set up asset protection plans for a variety of reasons; typically, however, the main goal of a well-structured trust is to protect assets from creditors and judgments.

For another, assets held in trust are generally considered beyond the control of the settlor and the beneficiaries of the trust. The property held in such trusts is considered separate from that of the individual who created the trust and therefore cannot be seized to satisfy judgments against the individual or to pay his or her creditors. Such property does not form part of an individual’s estate upon his or her death and therefore is not subject to probate. If assets have been placed in an international trust in Nevis, then it is necessary to verify this information with the applicable authorities in Nevis. The Nevis government has legislated to protect international trusts from attacks by foreign creditors, encouraging their use in Nevis.

Incorporating a Nevis asset protection trust into your client’s total wealth protection plan has many advantages.

When Is a Nevis Trust Used for Asset Protection?

A Nevis trust is typically created as part of a total asset protection plan, not after a person has been served with papers from a creditor. The trust is often utilized by business owners, professionals, and others who have assets that could be put at risk by their personal liability for their business.

A Nevis trust is used for asset protection and estate planning. Individuals use asset protection to protect their assets for the benefit of their children, etc. For example, a trust can be the “member” of a Nevis LLC. The LLC then manages the LLC’s assets and does business in the LLC’s name, thereby protecting the individual (s) who own the LLC from personal liability.

Establishing a trust is an entirely different thing from transferring assets to a trust, which one hopes will protect them from future claims by creditors. Transferring property into a trust prior to any known claims against that property by its present owner or others would be improper. Also, transferring property into a trust when creditor claims are already imminent would be equally improper. 

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Why Might a Creditor Decide Not to Pursue a Nevis Trust?

An individual can readily set up a trust intended to prevent a creditor or others from collecting from trust-held assets, but the economic reality of establishing and administering the trust strongly influences a creditor’s decision to pursue an individual who has established a Nevis trust. 

Another consideration is that foreign judgments against an international trust are not enforceable in Nevis under current legislation. To recover assets held in trust for the benefit of the Settlor in an international trust established in Nevis, the judgment holder must commence civil proceedings in Nevis to recover the assets from the trust. These proceedings are commenced in the courts of the Federation of St. Kitts and Nevis.

This additional layer of litigation introduces further considerations for creditors attempting to recover their claims.

• Whether they possess a viable claim under Nevis law;
• Whether they can fulfill the relevant evidentiary standards;
• The costs involved in securing local legal representation;
• The time it takes to file a claim in a foreign jurisdiction;
• The security requirements relevant to their claim;
• The potential for an unfavourable outcome;
• Does the value of assets held in trust and recoverable under the claim exceed the cost of recovery?

Although most substantial and well-founded claims are pursued, effective asset protection planning can influence whether they pursue them. 

The Cost-Benefit Equation of Litigation

Consider a simplified example.

For instance, a single creditor of a bankrupt debtor with a $1,000,000 claim. A creditor would have a significant commercial advantage in pursuing recovery of such a claim through litigation.

But rather than simply litigating his claim to recover his loss, the creditor would have to (1) start a fresh legal action in a foreign jurisdiction; (2) instruct local solicitors to deal with the new foreign action; (3) comply with local and foreign procedure; (4) provide a surety or other security to mitigate his potential loss; (5) organise sufficient documentation to prove his debt; and (6) prove the validity of his claim at the trial to the required standard of proof.

However, even though his opportunity for recovery remains unchanged, the costs and uncertainty for recovering the debt have escalated. The above example is key to understanding creditors’ rights in practice.

The goal of a creditor protection system is not to discourage all types of litigation.

In effect, creditor protection legislation introduces sufficient ‘friction’ into the creditor’s exercise of their rights to ensure they consider the matter sensibly. 

What Makes a Nevis Trust Difficult for Creditors to Challenge?

The many distinct features of Nevis’ legal framework are interconnected and therefore complement each other perfectly. This article explains each feature in detail, but ultimately, it is the combination of all of them that makes Nevis the most popular jurisdiction for international asset protection.

1. Foreign Judgments Are Not Directly Enforceable Against the Trust

Of particular note is how Nevis law treats foreign judgments. The FSRC notes that foreign judgments against Nevis International Trusts will not be enforceable within Nevis unless and until a Nevis civil law proceeding is completed in the St. Kitts and Nevis courts.

The main reason for this distinction is that enforcing a judgment against assets in a foreign jurisdiction is generally a separate legal process from obtaining the judgment in the jurisdiction in which it was rendered. Therefore, foreign creditors of assets held by a foreign trustee may incur additional costs and face undue delay and uncertainty in their efforts to realise their claims against assets held in a foreign trust. 

2. Creditors Face a High Burden of Proof

Section 26 of the Nevis International Exempt Trust Ordinance sets the burden of proof on the creditor of the transfer, and he or she must establish beyond a reasonable doubt that the trust was created or the property transferred to the trust with the intent to defraud the said creditor in order to set aside the transfer to said trust.

In order to show that the trust has been established or the property transferred for an improper purpose, the creditor must also demonstrate that the transfer of assets left the settlor insolvent or that he/she will lack sufficient property to satisfy all present and future-related claims in respect of which the trust was established or the property transferred for an improper purpose.

In a jurisdiction such as Nevis, the creditor must prove that the transfer of assets to an international trust was a fraudulent disposition. The standard of proof required to establish such a fraudulent disposition is beyond a reasonable doubt, and it can be established with clear and convincing evidence.

Legitimate asset protection and evasion of creditors through abuse of trust are two entirely different matters. 

3. A Security Bond Creates an Additional Financial Hurdle

A security bond is an additional financial barrier to creditors advancing claims.

The FSRC of Nevis currently requires creditors to advance a claim against a Nevis trust to pay $US 25,000 to the Ministry of Finance as a security bond against potential losses. Litigation can be very expensive, even for successful creditors.

While minor and/or largely speculative claims may be deterred by the added cost of legal recourse, substantial claims will view these costs as covered by the claim. The merits of the claim will, as ever, take precedence.

4. Time Limits Can Matter

The Nevis Financial Services Regulatory Commission (FSRC) is now on record that the courts of St. Kitts and Nevis have no jurisdiction to hear any claim or commence any proceedings in respect of a trust established in Nevis more than one year before the commencement of such claim or proceedings, unless otherwise provided by statute.

For your research on trusts and capital protection in Nevis, you will need information on the date of creation of a trust and the reasons it was established. You will also need to know about the capital switching to the trust, how the trust was established, and the relevant Nevis legislation that must be complied with.

The Combined Effect: Increasing the Cost and Uncertainty of a Claim

Strategies in debt collection extend the period for a creditor to recover a claim.

Used in concert, these enhanced provisions for debt collection provide protection greater than the sum of their individual parts and offer valuable comfort to the trust’s grantors and beneficiaries.

Why Timing Is Critical When Establishing a Nevis Trust

Waiting until a conflict arises to set up a Nevis trust for asset protection is generally not recommended, as you may miss opportunities to implement alternative asset protection strategies that could be far more effective. Proactive asset protection is generally recommended.

An example of effectively utilizing Nevis trusts would be for someone with a prospering business to set up a Nevis trust while everything is well with the business and there are no pending claims against the individual.

However, when that same individual later becomes involved in a lawsuit related to their business, their intentions are viewed very differently.

This is the opposite of someone who believes they can put their assets into a trust to protect them when a creditor starts to litigate against them. A Nevis trust is not a good asset protection vehicle for someone facing an imminent lawsuit who will likely be accused of moving assets into the trust to defraud creditors and thwart their ability to pursue legal rights. As such, a Nevis trust must be part of a complete plan to protect your assets long-term.

What Other Benefits Can a Nevis Trust Provide?

A Nevis trust can provide significant asset protection. The advantages of a Nevis trust are greatest when Nevis’ very favorable trust laws are merged with administrative structures and global grantor objectives.

The benefits of a Nevis trust depend on the trust agreement, the assets placed in the trust, and the local and foreign laws of the jurisdiction in which the trust is organised, as well as the citizenship of the grantors and the beneficiaries.

1. Strong Protection Against Creditor Claims

An offshore trust, such as a Nevis international trust, offers many advantages to entrepreneurs. Initially, the assets in a Nevis trust are protected against creditor claims. Nevis law does not recognise foreign judgments against a trust. As a result, a creditor must institute and pursue legal action in the foreign jurisdiction where the offshore trust was established as well as where the trust assets are located. Naturally, such action would be unproductive for a creditor, as he would have to spend a lot of money in attempting to achieve nothing.

This can cost the creditor a great deal of money to pursue an unsuccessful argument. Many of our clients are successful entrepreneurs, professionals, and individual investors who have a considerable amount of money at their disposal. Naturally, they wish to protect their assets against the natural risks of business, trade, and investments. 

2. Protection Against Certain Foreign Forced-Heirship Rules

A Nevis trust is a highly useful global estate planning tool. Nevis International Exempt Trusts are protected from certain foreign forced heirship rules by the Trust Ordinance. Therefore, an exempt international trust created as part of an estate plan will not be considered to have been created unlawfully and therefore be invalid and/or voidable and/or “defective” under foreign statutes having forced heirship rules that are contrary to the terms and conditions of such trust created by a settlor outside of Nevis.

This provision is of significant benefit to many families of international concern. Even where a deceased had undertaken full estate planning before his or her death, some or all of his or her assets may be subject to the forced heirship rules of the country in question. However, a carefully structured trust can deal with the trust assets as the settlor intended.

Please note that succession is generally a matter of fact, and therefore establishing a Nevis trust will not necessarily put the inheritance laws of the world at arm’s length. Inheritance laws worldwide are often highly complex and depend on a variety of facts, including the laws of the country where the settlor is resident/domiciled, the settlor’s nationality, and the location of the assets underlying the trust.

Notwithstanding the many restrictions imposed by the forced heirship statutes of many jurisdictions, it is now possible, through the medium of the Nevis International Exempt Trust Ordinance, for families with an international dynamic to be fully served from an estate planning perspective utilizing a Nevis trust. 

3. Long-Term Multigenerational Wealth Planning

In addition to offering tax advantages to its grantors and beneficiaries, a Nevis trust can also serve as the cornerstone of a family’s multigenerational plan or strategy to protect and enhance family wealth. Income and/or principal from a grantor’s estate can be held by the trust and distributed to beneficiaries in accordance with the terms and conditions of the trust, as established by the grantor.

For example, a family may opt to:

• Maintain their investments for future generations;
• Grant the beneficiaries in the trust the income from the trust assets but restrict their ability to deal with the trust assets for a set period of time.
• Establish distinct criteria for each beneficiary receiving distributions;
• Implement and sustain a cohesive investment strategy across the family;
• Safeguard and transfer their wealth through multiple generations.

The FSRC has recently clarified that the Rule Against Perpetuities (RAP) does not apply to trusts established under the laws of Nevis and utilized as part of an international long-term plan for family structures, so long as the trust is properly created and administered as a Nevis trust in accordance with the laws of Nevis and the applicable regulations thereof.

4. Flexibility Over How Wealth Is Managed and Distributed

Wealth can be distributed as stipulated in the trust deed.

When establishing a waiver trust in respect of personal assets (i.e., wealth owned in the individual’s name), the individual will generally retain substantially similar rights and obligations in respect of those assets after they have been transferred into the trust. The trustee(s) of the trust assume substantially similar responsibilities to that individual with respect to the trust assets, in accordance with the trust terms and the relevant legislation.

The trust document can be as comprehensive as the situation requires in respect to the administration of the trust.

• Who will benefit from the trust?
• When will distributions take place?
• What restrictions apply to distributions?
• How will investments be managed?
• What steps are to be taken with the assets of a deceased beneficiary?
• How will assets ultimately transition to future generations?

A trust allows the distribution of large sums of money from bank accounts, as opposed to personal effects, and can be structured to meet the individual needs of any complex family structure.

5. Greater Separation Between Personal Wealth and Protected Trust Assets

In addition to identifying assets to grow and protect the settlor and their family, it is also important to differentiate between the settlor’s assets and those placed in trust to protect them from the risk of the settlor’s other business ventures.

These assets can grow in value without being exposed to the risk of the settlor’s other business ventures.

The choice of specific assets will depend on the individual circumstances of the person establishing a trust to protect their own interests and those of their family. Such a person could be running a number of separate businesses, and in addition, he or she may hold a substantial portfolio of investments in stocks and shares and in real estate and cash, as well as in many other types of assets.

Examples of such assets may include:

• Operational businesses;
• Real estate;
• Equities and/or bonds;
• Reserves for cash flow management;
• And others of a different nature invested in different markets.

Both family and investment assets, as well as business assets, are typically subject to erosion during economic downturns, in conjunction with related liabilities. It is also important to understand the difference between the above-mentioned asset types and the other business activities the settlor is involved with.

6. Potential Protection From Certain Future Personal Liabilities

It’s better to set up asset protection before you face potential liability in a lawsuit. Lawsuits these days can last for years and involve many uncertainties. Many types of liability and lawsuits exist, including disputes with partners, professionals, or employees; mergers and acquisitions; breach of contract; or other business failures.

Establishing a trust before unforeseen problems arise can help protect your future and reduce litigation exposure.

It is important to note that Nevis Trusts are not designed to be used as a means to avoid payment of existing debt or to prevent collection by existing creditors. Also, each jurisdiction has different court approaches to piercing the veil of an asset protection entity, such as a Nevis Trust.

Implementing effective measures to protect your assets before unexpected situations arise is the best way to protect them. 

7. International Flexibility

We consider that families with international mobility between countries are best served by a total cross-border wealth management plan that includes a Nevis trust. The foreign family in question typically has:

• One primary domicile or residence, which may evolve over time;
• Companies registered in various jurisdictions;
• Investment accounts across multiple countries;
• Beneficiaries residing in various locations;
• Assets distributed across a range of regions worldwide.

This means that in addition to compliance with the laws and tax regulations of Nevis, your cross-border wealth plan must also take account of the laws of the settlor’s country of principal residence (which may change over time) and any further tax and reporting obligations of the settlor and/or beneficiaries in that country, as contrasted with the Nevis laws.

Further consideration should also be given to the laws of the settlor’s country of principal residence from time to time, as these laws, in addition to those of Nevis, may impose further tax and reporting obligations on the settlor and/or beneficiaries of a Nevis trust in such country. 

8. Combination of Asset Protection and Estate Planning

Including an asset protection trust in your overall estate plan offers multiple benefits.

In addition to protecting your assets from creditors, your new trust can also help you achieve other important estate-planning goals. As well as distributing your assets after your passing, trusts can also be used to manage assets in trust during your lifetime and to protect and keep your wealth for the benefit of your children and future generations.

We provide our clients with single solutions to manage multiple objectives.

Consider an entrepreneur who aims to:

• Protect their investment portfolio from personal creditors.
• Preserve these assets for the benefit of their family;
• Establish clear guidelines for asset distribution;
• Address the needs of their children and future generations; and
• Implement a long-term financial strategy that fosters sustained investment for their benefit.

A trust is a structure designed to meet your goals while complying with all applicable laws, regulations, and tax codes. 

The 8 Main Nevis Trust Advantages at a Glance

Please note that the aforementioned advantages are not automatically guaranteed. A trust is governed by the conditions laid down in the trust deed, how it is established, the assets included in the trust, and the legislation of the countries involved.

Why the Combination of These Benefits Matters

In addition to providing asset protection, a trust can provide for family members and establish a structure to manage and distribute wealth over time. Importantly, a well-structured trust can meet all of these objectives.

For example, one of our clients was an international businessman who wanted to keep his assets out of his name while ensuring he was taking care of his children. We helped him set up a trust using his business assets, and he appointed his trusted advisor to manage the trust assets. That structure gave him a framework for managing and distributing his assets after he passed away.

A Nevis International Trust can effectively integrate several objectives:

Asset protection + creditor deterrence + succession planning + wealth management + multigenerational planning

Importantly, you must carefully consider key tax and legal factors before establishing a trust, such as the trust’s tax residence and reporting requirements, forced heirship and other laws that may apply to and affect an offshore trust structure, and how the trust and its assets can be managed and distributed.

What a Nevis Trust Does Not Do

A Nevis trust cannot:

• Make you completely immune to being sued;
• Legalize fraud or illegal transactions.
• You will, however, be required to pay tax in the foreign country in which you are living on all income that you earn whilst abroad.
• Cover all possible circumstances by which creditors may collect by means of judgment against you.
• Replace other adequate insurance and risk management strategies.
• Create “invisible” assets for regulatory agencies and for tax purposes;
• This does not mean that the laws of your home country can be disregarded.

Such information includes details regarding the proposed trust, as well as information concerning the proposed Trustee(s) and how the trust shall comply with the applicable laws. Additionally, during the registration process, the FSRC requires the applicant to certify to the FSRC as to several issues, including whether any illegal activity is contemplated to be effected through the trust or if any litigation is currently pending with respect to any illegal activity.

The FSRC requests information regarding the trust, the trustee(s), and how the trust will comply with all applicable laws. During the registration process, applicants must also certify to the FSRC certain circumstances, including whether any illegal activity is contemplated or currently subject to litigation.

Asset protection is not merely a means to conceal information.

Nevis Trust vs. a Domestic Trust vs. a Cook Islands Trust

Asset protection in international settings is not limited to Nevis. The most suitable jurisdiction will generally depend on a variety of facts.

Therefore, when selecting the right jurisdiction for asset protection, an individual must consider their specific circumstances rather than choosing the most attractive jurisdiction based on marketing.

How Does a Nevis Trust Compare With a Nevis LLC?

The LLC and Nevis Trust are two entirely different legal entities.

Individuals set up a Nevis LLC to protect their assets while they are involved in their business or other endeavours. A Nevis LLC is considered to be a corporation, whether it is an individual or otherwise. This corporate body can hold assets and conduct business, and it can also own other assets and set up other corporations.

On the other hand, a Nevis trust is a fiduciary arrangement to hold assets for the benefit of certain individuals, to manage assets, and to accomplish objectives as set forth in the trust agreement.

We can assist in setting up a Nevis LLC and Nevis Trust at the same time in order to provide maximum asset protection. Yet the two entities have different functions and purposes. A trust can fund an LLC; the LLC would manage the trust’s assets, while the trust would hold an interest in the LLC.

Summary

Asset protection through a Nevis trust is more than a way to protect assets from seizure by creditors. An international trust of this nature significantly limits a creditor’s ability to seize a trust grantor’s assets because of the laws of a foreign country and the trust’s status as a separate legal entity from its grantors.

As the creditor attempts to reach your assets, the process can become pricey and time-consuming for the creditor. This collection action can be expensive for creditors to litigate in foreign jurisdictions. Moreover, creditors must strictly adhere to time constraints when litigating in jurisdictions such as St. Kitts and Nevis. Hence, asset protection utilizing a Nevis trust serves an additional valuable function in deterring cost- and time-prohibitive debt collection attempts by creditors.

What factors contribute to the value of a Nevis trust? Key factors include the jurisdiction, the legislation, the timing, and, most importantly, the administration of the trust.

Business owners across a wide range of industries explore offshore asset protection strategies. They can determine whether a Nevis trust makes sense for their particular assets, where they reside and how their business is set up. The trust must be established prior to incurring any adverse liabilities. 

Frequently Asked Questions